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International Journal of Business and Economy (IJBEC) eISSN: 2682-8359 [Vol. 2 No. 1 March 2020]
Journal website: http://myjms.mohe.gov.my/index.php/ijbec
THE DISCRIMINATION ANALYSIS OF COMPENSATION POLICY BETWEEN EXPATRIATE AND DOMESTIC EMPLOYEE AT MULTINATIONAL COMPANIES IN
SUMATERA UTARA
Yeni Absah 1*, Beby Karina Fawzeea Sembiring 2* and Fritz Octo Amando De Houtman3*
1 2 3 University of Sumatra Utara, Medan, INDONESIA
*Corresponding author: [email protected], [email protected], [email protected] Article Information:
Article history:
Received date : 13 December 2019 Revised date : 29 January 2020 Accepted date : 9 February 2020 Published date : 1 March 2020 To cite this document:
Absah, Y., Sembiring, B., & De Houtman, F. (2020). THE
DISCRIMINATION ANALYSIS OF COMPENSATION POLICY BETWEEN EXPATRIATE AND DOMESTIC EMPLOYEE AT MULTINATIONAL COMPANIES IN SUMATERA UTARA. International Journal Of Business And Economy, 2(1), 31-41.
Abstract: The existence of expatriate increasingly having an impact on several conflicts in the field of employment in Indonesia. Problems with expatriates are related to various matters including the compensation policy, That’s gap between compensation given to expatriates and domestic employee in Indonesia. The issue of unfair compensation by companies to employee is one of the hot issues that occur in compensation policies. This research uses a qualitative approach. Key informants in this study were 4 people, namely 2 expatriate workers and 2 domestic employee who came from several different multinational companies. The results showed that there was discriminatory treatment in establishing compensation policies between expatriate and domestic employee. Expatriate receive a greater compensation policy than domestic employee. There are several factors that are considered why compensation policies for expatriate are so much greater, including the sacrifice of expatriates, exchange rates, differences in lifestyle and culture, differences in needs and facilities as well as the level of company needs for expatriates. The results showed that 78.6% of domestic employee did not agree if expatriate received greater compensation.
Domestic employee applying for compensation must follow the pattern of achieving performance so that domestic employee can compete with expatriates.
Keywords: Compensation, Expatriates, Domestic employee, Multinational Company.
1. Introduction
The developments and needs of the era of globalization, demands the creation of employment policies to provide freedom in the competition of labour across countries. This condition is referred to the liberalization of the labour market around the world. Based on data from the Central Statistics Agency until November 2016 information on the number of foreign workers (expatriates) in Indonesia reached 74,183 workers an increase of 7.5% from the end of 2015, which was 69,025 workers. Until March 2018, the number of expatriates entering Indonesia reached 89,784 workers (databoks.co.id).
Existence of expatriate is increasingly having an impact on several conflicts in the field of employment in Indonesia. Problems with expatriates are related to various matters including the compensation policy, namely the gap between compensation that’s given to expatriates and domestic employee in Indonesia. As news data on December 16, 2017 the headline "the reason for expatriate salaries is higher than local workers" (www.liputan6.com).
The high view when talking and seeing foreigners (expatriates) is also a bitter reality that occurs in Indonesian society. Indonesian people tend to think that they are don’t better, consider expatriates is perfect and thus weaken the mentality of the Indonesian people in competing. Moreover, the Indonesian itself which installed low tariffs for Indonesian employee worsened the situation.
Resulting the discriminatory policy in providing compensation to domestic employee compared to expatriates.
So far, the view of discrimination in the compensation policy between expatriates and domestic employee is still unclear. Is discrimination really happening? Is the performance of expatriates far better than domestic employee? From the initial research, there were still many respondents who said that the compensation gap between expatriates and domestic employee have occurred.
Compensation policies also greatly affect performance and can be a form of work motivation for workers.
2. Literature Review 2.1. Human Resources
Human Resources is a very important thing and must be had in an effort to achieve organizational or company goals. Human resources are the main element of the organization compared to other elements of resources such as capital, technology, because humans themselves control other factors.
2.2. Compensation
According to (Marwansyah, 2010), compensation is a direct reward, indirect rewards in the form of additional benefits (benefits) and forms of additional services and incentives aimed at motivating workers to achieve higher productivity. In other words, compensation is a form of appreciation from the company to workers for their contribution. Furthermore, compensation is divided into three components; basic compensation, incentives, and benefits (indirect compensation).
Compensation is a counter-achievement against the use of labour or services provided by labour.
Compensation is the number of packages offered by organizations to workers in return for the use of labour (Wibowo, 2017).
2.3. International Compensation
International compensation can also be interpreted as a comparison of international compensation and compensation in multinational companies (MNEs). (Ward, 2004) emphasize the complexity of international compensation practices because of the importance of differences between countries in terms of working conditions, law, culture but also a mix of different workers (expatriates, local residents, and citizens of third countries) and the introduction of exchange rate risk.
2.4. Discrimination
Discrimination according to (Eurofound, 2012) is defined as "different treatment of individuals or groups based on arbitrary ascriptive or acquiring criteria such as sex, race, religion, age, marital or parental status, disability, sexual orientation, political opinions, socio-economic background , and trade union membership and activities ".
The definition of discrimination according to Theordorson from (Jainudin, 2016) is an inhumane treatment of individuals, or groups, usually based on something, usually categorical, or distinctive attributes, such as based on race, ethnicity, religion or membership of social classes or position positions in groups.
3. Problem Statement
Based on the background description of the problem that has been stated previously, the problem to be solved through this research is the truth of the gap between compensation policies for expatriate and domestic employee in several multinational companies in North Sumatra. In connection with these problems, then some basic questions in the formulation of the problem are as follows:
1. Is there a gap or gap in the determination of compensation policies provided between expatriate workers and domestic workers?
2. How does the compensation given to expatriate and domestic workers compare?
3. What factors cause gaps in the compensation policy?
4. What are the alternative policy strategies that can or need to be used to overcome the problem?
4. Method
This research is descriptive qualitative, meaning that the research illustrates and explains matters related to using descriptive data in the form of written or oral words from people as research objects factually. According to (Sinulingga S. , 2018), descriptive research is a type of research that aims to describe systematically, factually and accurately about the facts and properties of a particular object or population. The research wants to ask or want to know about the meaning (in the form of concepts) and the phenomenon behind the detailed stories of respondents with the background studied (Hamid, 2010).
The population was expatriates and domestic employee at multinational companies in Sumatera Utara. The selection of workers from multinational companies is assessed from the aspect of the company's feasibility using snowball sampling. Snowball sampling is a technique to draw samples from a population, which is to pull data elements from the population gradually so that the sample size gets bigger and bigger (Hamid, 2010). Key informants in this study are 2 expatriate workers in different multinational companies and 2 domestic workers in different multinational companies. The selection of key informants was carried out to get an apple to apple comparison so that the informants were chosen with positions / positions as managers. Primary data collection is done by conducting interviews.
4.1. Key Informant
Key informants in this study are 2 expatriate workers in different multinational companies and 2 domestic workers in different multinational companies. The selection of key informants was carried out to get an apple to apple comparison so that the informants were chosen with positions / positions as managers. Primary data collection is done by conducting interviews..
4.2 Data Collection
Based on the results of the study, it was found that there were differences in the amount of compensation policy adopted by expatriate workers working in multinational companies in Indonesia. Some of the statements given by the expatriates define and explain that they received compensation previously negotiated with the company. Different answers from informants explained that compensation between expatriates was different from other expatriates, both to expatriates who worked at the same company and different companies.
That’s the comparison about compensation policy for expatriate and domestic employee from data interview:
COMPARISON EXSPATRIATE DOMESTIC
INFORMAN 1 INFORMAN 2 INFORMAN 3 INFORMAN 4
Position / Grade Director Sumatera (TCN)
Manager
Production (PCN) Account Manager Ass. Manager Production
It Works ± 3 years ± 5 years ± 1 years ± 2 years
Nominal Compensation
30–50 million / month (basic)
> 100 million / month (all in)
40 – 50 million / month (all in)
< 20 million / month (all in)
Exchange Rate
• Lira
• Minimum MSE in Turkey is 2558 lira / month
• Around 6.3 million in rupiah
• Yen
• Minimum MSE in Japan is 901 yen / hour
• Around 28 million rupiah / month
• Rupiah • Rupiah
Policy References
• Following UMK Indonesian + another policy in allowance
• International standard.
• Adjustment to Japanese basic
• Negotiation with company
standard
• Company Standard
Life Style
• Available
• Can adapt to the lifestyle in Indonesia
• Available but difficult to reach
• Difficult to adapt to lifestyle in Indonesia
• Available
• Available but difficult to reach
Need’s
• Fulfilled
(Physical &
spiritual)
• Turkish food is available
• Fulfilled (not to spiritual)
• Japanese food is available but difficult to findings
• Fulfilled • Fulfilled
Allowance &
Facilities
• Get allowance
• Home / official residence
• Official Car
• CC (limit 15- 20 Million /Month)
• Tickets work
• Tickets back to country of origin
• Education
• Get allowance
• Home / official residence
• Official Car
• Driver
• Tickets work
• Tickets back to country of origin
• Get allowance
• Official Car
• Tickets work
• Get allowance
• Home / official residence
• Tickets work
Performance
• Outcome oriented
• 7/24 hours online
• Responsive
• Process oriented
• Detail
• Responsive
• Process oriented
• Detail
• Responsive
• Process oriented
• Detail
• Responsive
Motto • Working is priority
• Life it’s mean work
• Ready every time
• Creative &
Innovative
Statement of discrimination treatment
• Agree (but it’s normal)
• Dis not agree (because it corresponds to sacrifice and company needs
• Agree
(expatriate get higher
compensation with relative same position)
• Agree
(expatriate get higher
compensation)
Table 1. Comparison expatriate and domestic employee
5. Results and Discussion
Discriminant Analysis of Compensation Policies Between Expatriate Workers and Domestic Workers
1. Based on Nominal
The nominal compensation policies provided by multinational companies between expatriate workers and domestic workers vary. In comparison, there is a gap from a relatively small nominal to a large enough nominal value. The difference is based on the reference to the determination of compensation policies used by the company, because each approach to determining compensation policies will produce a nominal amount that varies from one another.
The following excerpts from interviews with informant I (expatriates):
"Are you willing to tell us what the nominal range of compensation you have received from your company? (e.g. 20-30 million or other numbers) "
"Nearly 50 million per month."
The results of interviews with domestic informants described discriminatory treatment in policy enforcement. The company is considered not to be transparent in determining the compensation policy, because it does not notify the comparison of the nominal compensation given to expatriate workers and domestic workers. This is indeed a challenge and a common problem between expatriates and domestic where there is always a form of dissatisfaction from both parties.
The following excerpts from interviews with informant IV (domestic):
"Are you willing to tell what the nominal range of compensation you have received from your company? (e.g. 20-30 million or other numbers) "
"At present it is still below 20 million per month."
"Do you know the estimated nominal compensation given by the company where you work for your expatriate colleagues in the same position?"
"For the same position as me, there is no expatriate in my superior position. Expatriates are almost all managers with different fields. If the information is that the salaries of expatriates here are around 50 million to 70 million. "
"In your opinion, do you agree with the use of the compensation policy system given to you?"
"In my opinion, I agree that when I do not know the comparisons of compensation given between me and my colleagues, especially to foreign workers. I also agree that when I was hired to work here I was told how the policy was determined. Because after I know and I agree there will be no words of disagree and criticize or feel cheated. Now I do not know in advance what the approximate comparison is. After knowing and seeing a comparison like that, surely I and anyone feel cheated.
But back again, it can't be said to disagree because when applying for a job, the figure of 15 million is given to us, already big enough. For example, if I was offered the number 15 million at that time, if I refused, there would be other people willing.
2. Based on Government Regulations
There are still many employers or companies that treat workers improperly, treatment that is not in accordance with applicable regulations.
The following excerpts from interviews with informant VI (Government):
"Do you think the policies written in the law have been applied optimally in the field of employment?
Reason?"
"Optimal in implementation maybe not yet. The law is only as a guideline in the labour system, both as regulators of relations between workers and bosses or business owners, regulators of work agreement models, regulators of wage policy and others. The law cannot conduct its own supervision, we as a community both from the government, workers and business owners are supervisors and implementers of the law. So it is certain that the law will never be optimal in the implementation of the field, but in my opinion the formulation of that law has already been".
Various attempts have been made by the government, both based on the making of laws to various other policies. However, to date these various efforts and policies have not been able to have a significant impact with a positive trend to produce a conducive employment atmosphere. This can be seen from various labour-related conflicts, such as conflicts between expatriate workers and domestic workers.
3. Based on Theory
Some points that need to be considered by the company in determining the compensation policy can be a comparison of the suitability of the compensation policy given by the company with theory.
The comparison between the policies carried out with a number of points is not appropriate. From the results of the study, it was obtained that the stipulation of compensation policies provided by companies tended not to refer to the performance of these workers. Policies set by the company towards expatriate workers are more based on nogosiation of work contracts. Likewise with domestic workers who get more compensation calculations to conform with the provisions of the company and the ability of the company.
The following excerpts from interviews with informant III (domestic):
"Do you know the method or method of the company to determine compensation (ex: following UMK, negotiations or international compensation?"
"I dont know. I negotiated to get the nominal salary and facilities provided, because the company had made an offer beforehand. I do not know where the offer came from ".
The following excerpts from the interviews with informant IV (domestic):
"Do you think the company you work for is already open in handling compensation?"
"If you look at the data it is definitely not yet, because we just don't know the difference in compensation between expatriate and local workers"
However, the perspective of discriminant behavior in compensation policies will not occur if there is a comparable form of satisfaction between workers and the company. Basically, all polemics or conflicts will not occur if all workers and the management of the organization (company) understand their respective conditions (Khair, 2018).
4. Based on Other Factors
From the results of the study, several other factors were obtained which could also be considered and become logical reasons for the answer why expatriate compensation is greater than the compensation of domestic workers. Some of these factors include:
1. The company's needs for workers
The company's need for workers is an important factor influencing compensation policies between expatriate workers and domestic workers. The company basically will do everything for the progress and development of the company. Therefore, the company will look for the best and right people to work for their company. In other words, the existence of expatriate workers is also due to the level of need for their abilities.
The following excerpt statement of informant I (Expatriates):
"I have never been asked to be placed in Indonesia. Previously I worked in Thailand at the same company, then the company asked me to move to Indonesia. As a worker I'll follow my company's request. Because we have a fair agreement. The question is, if the company does not need me, why am I being asked? if domestic workers can do it, they certainly use domestic services, because it is cheaper.
The following excerpt statement from informant II (Expatriates):
"I was reading and seeing your thesis proposal. Why do you say there's discrimination happened when we (expats) get more salary from domestic co-workers. You just ask them, does the company discriminate for them? They know all about compensation for me and for all the workers. Don't you consider your statement? we leave family in our country, leave loved ones and comfort that we don't
The following excerpt statement from informant VII (Domestic):
"Discrimination is actually not only in terms of compensation policies, starting from the recruitment has occurred. There is no need to look at multinational companies in distinguishing prospective outside workers from our workers, which is common among ethnic groups as well, especially with expatriate workers. There is an image for multinational companies to raise their existence if they employ expatriate workers. The company is considered capable, both able to get its expatriates, able to pay its salary. That's still beyond his ability. The point is for the company to lift its existence (mob) against its competitors. Especially if the worker is specific and does have good skills. Just like how the head hunter works. They will try to find the chosen people to be placed in positions of need in the company. It could be because seeing the origin of USU graduates (alma mater) compared to other campuses. It has something to do with prestige. So, it is not uncommon for head hunters to choose the wrong person. Likewise, with multinational companies "
The following excerpt statement IV (Domestic):
"In the professional world, skilled workers are certainly not arbitrary in choosing a job. Selection errors that affect the track record carrier. I myself am not an expert, I also choose when I want to work, but sometimes it tends to be because I have no experience so what is important is to enter first.
You will be like that later too. After having experience, it can be said that we have skills in certain fields, then we will be sought by companies that need it, but still see the number. Such a quota between the needs of the company and the number of skilled people. In Indonesia, there are many experts, but companies use outside workers, that's why. In our company (where informants work) there is such a thing as a trend for hiring prospective employees. for example, this year the assessment of university A is superior to university B, or vice versa it influences the most important personal candidates. I also just learned that. For outside workers, there is a trend that influences it.
for example, between workers from Malaysia, or Thailand or India or from anywhere. The company sees the potential of human resources in the country. The company is also like that, there are levels that make it a target. For example, the company with the highest salary payments is certainly Google, Microsoft, Oil and Gas and others. I'm also interested anyway, but it's definitely difficult because of competition ".
The results of the study found differences in the number of compensation policies provided between expatriate workers and domestic workers. The difference is inseparable from the basis for determining the compensation policy given to expatriates and domestic workers. From interviews with several informants from different multinational company backgrounds, the answers obtained were relatively the same, namely "there are differences in the basis or method of determining compensation policies given both fellow expatriates and domestic workers". The difference in policy was rejected by several informants with a percentage of 78.6% rejecting such a high compensation policy for expatriates and 21.4% agreeing.
Figure 1. High percentage of expatriate compensation denials diagram
Based on the results of the study obtained information that the reference or compensation policy foundation given to each informant is different. There are a number of different main points included in the compensation policy package for each worker. In other words, there is no standard that can be applied generically by multinational companies in determining compensation policies. The informant also provided information that the company actually already had a reference data for granting compensation to him.
The following is a nominal list of expatriate worker compensation since 2017:
Work Division Compensation (Rp) /
year Work Division Compensation (Rp) / year
Marketing
Manager 195 - 650 M Hub Manager.
Government 325 - 845 M Social Media
Managers 65 - 130 M Corporation Affair
Director 845 Jt - 1,1 B Digital Head 780 Jt - 1 B Developer 195 - 260 M Technical
Manager 195 - 520 M Chief Technology
Officer 1 - 1,95 B Project Managers 325 - 416 M Manager
Operational 65 - 975 M Senior Financial
Analysts 270 - 380 M Communication
Manager 195 - 390 M Financial Officer 1,6 - 2 B Market Research
Director 390 - 910 M Legal Manager 195 - 325 M
Table 2. Expatriate worker compensation since 2017 (dataexpat.co.id)
The compensation value that can be obtained by expatriates with relatively the same position as Account Manager in multinational companies can reach 200 million per month. Before knowing the nominal amount of compensation given to expatriates, the figure of 35 million has become the best number to be accepted as a worker in Indonesia, but after knowing the amount of compensation given to expatriates there will be a feeling of being discriminated against by the difference in the amount of compensation.
Overall, the assessment of aspects of performance indicators is indeed a necessity in the reference for determining compensation. To see the productivity performance between expatriate workers and domestic workers. The dominance of the assumption of superiority of expatriate workers also received comments and criticism from domestic informants. According to them there is a comparison point that cannot be compared because the job skills demand factor comes from outside the State of Indonesia or in other words from the country of origin of the multinational company. In accordance with an excerpt from the statement of the informant in the study which said that "the performance of domestic workers is not much different from the performance of expatriates, but the compensation gap provided is so large".
6. Conclusion
Discrimination in compensation policies between expatriate and domestic employee occurs because of differences treatment. Discrimination happened because expatriate get higher of compensation policies between domestic employee with relative same position. There are several factors causing the compensation policy gap between expatriate and domestic employee, where expatriate compensation is greater than domestic workers. These factors include:
1. Differences in exchange rates between domestic workers and expatriate workers.
2. Less optimal role of government
3. Lifestyle and cultural differences between expatriate workers and domestic workers.
4. The company's needs for workers 5. Sacrifices made by expatriate workers 6. Company prestige for workers.
7. Acknowledgement
Thank you to all those who have supported this research, both the informants as expatriate and domestic employee as well as the mentors who always guide and direct this research well.
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